Krugman Sees Spending As Spending

I like your commentary on financial matters a great deal. But I think your macro commentary is quite irrelevant usually. I suggest spending time reading Scott Sumner’s blog; I suspect his perspective would appeal to you. Nothing could become more relevant than this post, right now. Krugman and his ilk wish to squander financial value building Bridges to nowhere, without considering that creating value is what improves society for any classes in the long run, not “creating careers”.

This must find out to him, and all of those other Keynesians, and repeated until it gets through their thick skulls. Eric, continue the good work. If the national Federal government wants to encourage cash-rich companies to invest money now, you will want to offer them a 50% taxes credit on new equipment buys (or other capital spending) created before a certain deadline (e.g., within the next year)?

2 of business spending, that must have an optimistic multiplier, no? And since it might be profit-seeking businesses, rather than the Federal government, making the spending decisions, presumably, the spending would go in more effective directions. Eric – right on. I believe it’s quite safe to disregard anyone whose opinions begin with “aggregate demand is good regardless of sustainability or quality of investment”.

That sort of thinking leads to the idea that a Tulip Bubble is an excellent Thing, because you have lots of demand conference lots of source and therefore the economy is strong. Dave: The history of stimulus via tremendous taxes credits is not exactly glorious. It’s virtually exactly like the government spending to produce demand, except with the added probability of clever folks gaming the taxes code to derive positive risk-free profits at government expense from negative NPV investments. To the level that the credit helps buys that could have been made anyhow, it just provides free money to corporations in exchange for accelerating their case (which is then low in years with less attractive taxes benefits).

To the degree that the credit helps purchases that were not even close to financial, it gets the nagging problem Eric discussed. To the extent that the credit helps lift 5% return projects to 10% projects and pushes them over someone’s cost of capital, we’re just competing with China in the use of massive stimulus to generate enormous capacity in minimally profitable industries.

Good luck with this. In Australia, an initial term Prime Minister has just been dumped (and only his deputy), partly due to the mismanagement and reporting associated with Keynesian stimulus projects. The electorate does not seem to have bought the line that the waste is ok, “because its all stimulus”, no matter how much politicians and the mainstream media try to ‘educate’ them.

So as typical, what seems uncontroversial to the idea of banality to economists like Krugman, does not persuade the public still. I suppose I will have been more specific. I think Falkenstein (and many commenters) are puzzled about financial economics. It is difficult to state anything true and interesting about macroeconomics without understanding financial economics.

There are proper reactions to arguments for fiscal policy (fiscal policy is obviously not my first choice for fixing today’s problems), but Falkenstein’s point, though true, is besides the point mainly. That I would disappoint you by arguing what you think is a bad idea X while also promoting good idea Y, is just one of those unavoidable problems.

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Just remember, geniuses have bad ideas, madmen, and wicked monsters have good ones. You can’t expect your friends, aside from your opponents, to be consistent in your epistemology. One way to solve the nagging problem is usually to be a partisan, say a standard Democrat, Republican, Socialist, and follow the party series. Most popular blogs, in fact, follow this pattern (DeLong, Thoma, Krugman).

But, I don’t observe how monetary policy’s comparative importance to fiscal policy pertains to the Krugman comment. I so far as its effect, a claim I find absurd, but a Keynesian staple. I thought the proximate cause was the resistance to his mining Super Tax proposal. Gillard promptly walked it back and worked out a less confiscatory proposal after conversations with the major miners. Will there be any form of fiscal stimulus you (or Eric) would approve of?